SIGNODE

SIGNODE

Q. Should Gary Reed implement Price Flex?

Yes, because of the following main reasons:

1. Alpha is the biggest competitor for Signode. Most of the competitors sold strapping roughly at 95% of Signode’s book price. They faced intense competition on price in the market causing a fall in the market share by 10%. Also there are concerns that the competitors, who even though have increased their book prices, might continue to charge actual price levels in an effort to gain market share. Competitors have also traditionally followed dropping book prices along with Signode, and any reduction now would not help. Signode, in this situation needs to control pricing out of the gamut of the book price, and implementing Price Flex would be the apt solution.

2. Quadrant analysis of price paid vs cost to serve provides the following reasons for us to believe they should implement price flex:
- In a situation where cost to serve and price paid are either both high or both low a price increase needs to be implemented.
- In a situation where cost to serve is very high and price paid is very low, an immediate price increase is needed.
- Only the quadrant where price paid is high and cost to serve is low, no price increase should be done.

3. They are a highly leveraged company. It would not be feasible to provide same high discounts to all customers. Thus, they need segmentation to drive the discounting model. They can continue to charge premium prices to the service oriented customers while offering discounts to the customers who purchase this on a commodity basis. This would allow them to strike a balance between managing customers and profitability at the same time.

4. In the current context of falling market share as well as a falling profit margin while the raw material costs are increasing, passing the costs to customers directly would further decrease the market share. This is so because of customers’ options to move out to the existing fierce competition. Consumers want strappings at lower prices, rather than new tools and new machines. So Signode should focus on price flex to achieve lower prices for these customers.

5. Their sales volume through distributor is already less than 1%. Since they don’t have a strong distributor network and rely heavily on their sales team, they need to empower them to take decisions based on the preferences of each customer. Implementing Price Flex would allow them to give these options to the sales team.